GERMAN POLITICS: MIXED BLESSING FOR MERKEL FROM BAVARIA - Macro Flash

One week ahead of Germany’s federal election, some good news for chancellor Merkel from the state poll in Bavaria.

The Bavarian variant of her centre-right party handsomely won the state election, increasing its share of the vote to around 49% and gaining an absolute majority of seats in this traditional conservative stronghold. The excellent economic situation translated into a clear win for the centre-right incumbent in Bavaria.

The centre-left opposition did not do well, with a marginal rebound for the SPD more than offset by losses for the Greens.

Right-wing and centre-right protest parties who have taken to rail against the euro did not do well in Bavaria. The major such protest party, the “Free Voters”, got less votes than four years ago.

So much for the good news for Merkel. Now for the mixed blessing. Almost all the gains for the CSU, the Bavarian variant of her CDU, came at the expense of the small liberal FDP which lost more than half its previous share of the vote and fell far short of the 5% required to gain seats in parliament. The FDP is Merkel’s current coalition partner in Berlin.

Falling to around 3% of the vote in Bavaria may not spell disaster for the FDP at the national level on 22 September. Alerted to the risk that the FDP may not make it into the national parliament, some Merkel supporters may cast a tactical vote for the FDP next Sunday, a common practice within Germany’s centre-right. But it could mean that Merkel’s CDU gets slightly fewer votes than expected at the national level. Also, whether the clear win for the CSU in Bavaria will invigorate the rather boring CDU campaign on the national level or whether some potential CDU supporters may now feel complacent and not bother to vote at all is an open question.

The major anti-euro party, the new AfD, did not compete in Bavaria. The mediocre result for the other protest parties in Bavaria is thus only a vague pointer to how well the AfD (currently at 2-4% in national opinion polls) will do next Sunday on the national level.

After six months of rising support for Merkel’s current CDU/CSU-FDP coalition in Berlin, the SPD has managed over the last two weeks to virtually eliminate the small lead of the CDU/CSU-FDP over the combined left/ultra-left on the national level. The separate risk that the AfD may make it into the national parliament and deny Merkel’s current coalition a majority of seats remains as well. Chances that Merkel can stay on as chancellor are around 90% in our view. But whether she can govern with her current FDP partner or will have to strike a deal with the SPD instead remains a very open question. For European policies, this would make virtually no difference. But on the national level, the tax hikes and national minimum wage championed by the SPD could potentially reduce the dynamism of the German economy over time.

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